The implications of Tullow’s Orinduik departure

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Tullow Oil has decided to sell its stake in the Orinduik Block, located offshore Guyana. At first glance, one might perceive this to indicate a lack of confidence in the prospectivity of the Orinduik Block. However, upon closer inspection, Tullow’s departure, rather than being a vote of no-confidence, reveals a carefully calculated strategy for the prioritisation of its African assets, in a manner that still underscores the potential of the Orinduik Block.

While Tullow has decided to sell its stake, it is doing so in a manner that keeps its toes in the waters of Orinduik’s potential. The agreement with Eco Guyana Oil and Gas (Barbados) Limited ensures that Tullow benefits from future potential developments in the block. The mix of an upfront cash payment with additional payouts contingent on milestones – from commercial discovery to the issuance of a production license – demonstrates this confidence in the block’s potential. Additionally, Tullow has struck a deal with Eco to retain royalty in the event of the production of hydrocarbons.

The initial non-commercial wells unearthed two distinct oil plays, pointing to the Orinduik Block’s lucrative potential. Given the adjacent Stabroek Block’s history of significant oil discoveries, Orinduik is set against a backdrop of proven success, and Tullow’s financial arrangement sees to it that it will not miss out on the action.

The reason behind Tullow’s decision to divest seems less about doubts over Orinduik and more about the company’s commitment to its core assets in Africa. Tullow’s Business Plan, anchored in Ghana’s Jubilee and TEN fields and non-operated fields in Côte d’Ivoire and Gabon, is strategic. Tullow is focusing generally on assets that are revenue-generating. By focusing capital on these producing assets and ensuring they aren’t diverting funds from established wells, Tullow is cleverly fortifying its foundation. This is about prudent management: ensuring consistent revenue streams while mitigating risks associated with newer exploration.

Meanwhile, Eco, which will hold a 75% operating stake, once all approvals are granted, plans to initiate a farm-out process. Eco also plans to target a ‘multi-hundred million’ payout at the block.

The Guyana side of the Guyana-Suriname basin, with its more than 11 billion barrels of oil discovered since 2015, is indisputably one of the hottest spots for oil exploration on the planet. Tullow’s departure from direct involvement is a tactical maneuver in a high-stakes global energy chess game.

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From the people who bring you day-to-day coverage through OilNOW – the Caribbean’s premier oil, gas and energy information service – the Energy Insights column offers perspectives and analyses on the evolving energy sector in the South American/Caribbean region, and further afield.


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